on Utility Storm Preparation

and Response

Appointed by

Governor Andrew M. Cuomo

• Hurricane Sandy –

October 2012

• 2.1 million customer outages

• Restoration period: up to 21 days

• Hurricane Irene –

August 2011

• 1.1 million customer outages

• Restoration period: up to 9 days

• Tropical Storm Lee -

September 2011

• 68,000 customer outages

• Restoration period: up to 10 days

• Ice Storm –

December 2008

• 330,000 customer outages

• Restoration period: up to 8 days

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Storm Impact on Electric Service

* All restoration estimates apply only to customer facilities that could safely receive power

Moreland Commission on

Utility Storm Preparation and Response

• Created pursuant to the Moreland Act

(Exec Law Section 6) following Hurricane Sandy

• Commission’s Mandate is twofold:

1. Study, Examine, Investigate, and Review:

• Emergency Preparedness and Response of Utilities

• Adequacy of Existing Regulatory Framework

• Adequacy of Existing Oversight and Enforcement

2. Make Recommendations for Reform

• Sent Subpoenas to 7 utilities & 40 letter requests

seeking documents and information

• Received and reviewed thousands of pages of documents

• Conducted over 20 witness interviews

• Held 3 Public Hearings

• Work will continue, including future public hearings

5

Summary of Investigation to Date

The Basic Problem:

• The six utilities operating in NY and LIPA operate as

natural monopolies in their own exclusive service areas with

no risk of losing all or part of the territory because of toothless

government oversight.

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Utility Companies = Natural Monopolies

Today the Moreland Commission is presenting preliminary

findings and recommendations in three areas:

1. Strengthen State Oversight of Utilities

2. Unify State Energy Programs and Policy

3. Restructure LIPA

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Preliminary Moreland Findings

and Recommendations

The Public Service Commission is charged with overseeing

New York utility companies but lacks real oversight

• Limited performance of required utility operational

and management audits

• Scaled back reviews of rate requests and service delivery

• Did not regularly review or approve utility storm plans before

Hurricane Sandy

• Weak penalty authority is failing to deter poor utility service

• Does not regulate LIPA rates and service

8

Public Service Commission

Lacks Power and Oversight

1) Authorize PSC to Impose Administrative Penalties for

Violations of its Orders

• Right now, the maximum PSC fine is only $100,000 a day total for all violations

• Utilities must be found to have committed a “knowing” violation, which may be

difficult to demonstrate

Commission Recommends

• Increase penalties to ensure adequate deterrence - for example base penalty

amount on .02% of gross revenue which would equate to about $2 million per

day for Con Ed and about $750,000 per day for National Grid

• Lower burden of proof to “reasonable business” standard

• Require penalty money to be returned to impacted ratepayers

• Grant PSC explicit power to review fitness of utilities

• Give State explicit authority to revoke operating certificates

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Strengthen State Oversight of Utilities

2) Require PSC to regularly review and approve utility storm plans

• Utility storm plans are reviewed by Department of Public Service (DPS) staff,

not PSC

• PSC does not approve and does not monitor for compliance

Commission Recommends

• Direct PSC to issue approval orders of utility storm plans with penalties for

utilities that do not adhere to PSC recommendations

• Require PSC review of utility compliance with plan

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Strengthen State Oversight of Utilities

3) Strengthen PSC oversight and restore regular auditing of

utilities management, operations, and rate increase requests

• PSC has made only minimal use of its authority to conduct

operational and management audits

Commission Recommends:

• Restore the Management and Operational Audit Unit

• Require management and operational audits at least every five years

• Require PSC to mandate implementation of reasonable audit

recommendations

• Create a dedicated enforcement unit to help ensure utility compliance with

laws, regulations and orders, which can be enforced through penalties

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Strengthen State Oversight of Utilities

4) Hire more trained staff at the Department of Public

Service after years of reductions

• Authorize DPS to fill up to 524 FTEs (FY 2012-13 Budget authorization)

• Additional 16 employees (508 to 524) could be deployed as follows:

• 8 engineers in the Emergency Management Unit (review of and compliance

with utility emergency response plans)

• 6 auditors/engineers in a new Management and Operational Audit Unit

• 2 attorneys in the Compliance Unit (review utility compliance with laws,

regulations, and orders)

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Strengthen State Oversight of Utilities

5) Unify management structure of DPS and NYSERDA

• Right now, DPS and NYSERDA run competing and overlapping green

energy programs leading to confusion, duplication, and waste

• NYSERDA and DPS draft separate disaster response plans with

little coordination

Commission Recommends:

• Unify management of DPS and NYSERDA

• Synchronize clean energy program administration efforts to bolster

both organizations’ ability to meet core functions

• Combine staff related to energy markets, policy and planning, and

emergency response in a single office

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Streamline State Energy Oversight and

Investment Programs

• Separation of ownership and operations leads to confusion,

incompetence, and lack of accountability

• Drifted from original mission which was debt management,

not power delivery

• Resource/capital investment decisions made by LIPA staff using

consultants, not utility managers actually running the system

• Not subject to PSC oversight

14

LIPA: Dysfunctional Management Structure

• Dysfunctional management structure led to operational and

communications disconnect between LIPA and National Grid and

inadequate response

• Failed to implement past State recommendations:

• Upgrade Outage Management System (OMS) — LIPA’s OMS is unable

to deal with large-scale storms

• Improve communications with the public — LIPA failed to change its

communications system, causing it to be unable to provide accurate

outage information and restoration estimates

Commission found the only option for change is a complete

overhaul of LIPA and how power is delivered on Long Island

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LIPA’s Substandard

Storm Preparation and Response

1. Investor-Owned Utility:

Qualified private utility purchases LIPA’s assets and serves

as sole utility manager

Benefits:

• Provides more efficient operation of utility

• Creates cost savings with respect to more efficient operations and

maintenance, synergies associated with power supply and fuels

management, and reduced need for contractors

• Subject to PSC oversight of rates service quality and rates

Risks:

• Complex transaction that would take time to execute

16

LIPA Restructuring Options

2. Expand State Authority:

Have LIPA assume authority to Manage System & Operations

Benefits:

• Provides accountability and clarity in management and communication

• Ensures that the Federal Emergency Management Agency financial support

would continue to be available in future storms Risks:

• Highly questionable whether LIPA customers will regain confidence in LIPA

• No incentives for continuous improvement

• Limits ability to recruit qualified executives because of inability to offer

competitive market based salaries

• Adds over 2,000 employees to an already overburdened state

employee benefit system

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LIPA Restructuring Options

3. Alternative Successor:

Existing public authority, such as NYPA, assumes responsibility

Benefits:

• Oversight of the entity would be done by a successful professional energy

industry and financial management team Risks:

• Adds an additional layer of bureaucracy to a complex system

• Managing a full LIPA public power effort could hurt NYPA’s ability to perform

its own mission

• Limits ability to recruit qualified executives because of inability to offer

competitive market based salaries which is compounded by the challenges

of an expanded management

• Adds over 2,000 employees to an already overburdened state

employee benefit system

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LIPA Restructuring Options

19

Moreland Commission Recommendation

• Integrates ownership, management, planning, and operations

• Resolves accountability issues

• Transfers operations from State to private sector

• Improves decision-making process

• More cost effective than the “Expand State Authority” option

• Ends the originally intended transitional role of LIPA

• Ratepayers benefit from an Investor Owned Utility rate structure

regulated by the PSC

The Moreland Commission favors privatization

of LIPA as the best option

• Will continue to look at LIPA and the other utilities operating in NY

• More public hearings in storm area and across the state

• Final report with additional recommendations issued in the coming months

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Moreland’s Work Will Continue

on Utility Storm Preparation

and Response

Appointed by

Governor Andrew M. Cuomo